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2019 (7) TMI 1945 - AT - Income TaxDisallowance u/s.14A r.w.r. 8D - Scope of amended / substituted Rule 8D - CIT(A) in directing AO to make the disallowance u/s 14A @ 1% of the average value of investment as per the amended / substituted Rule 8D of the I.T. Rules as against the claim of the assessee that no disallowance in this case is attracted u/s 14A of the Act except the amount suo motu disallowed by the assessee - HELD THAT - The issue is covered by the various decisions of the Hon'ble High Courts including that of the Hon'ble Jurisdictional High Court in Bright Enterprises Ltd. 2015 (11) TMI 342 - PUNJAB HARYANA HIGH COURT and also with the decision of Hero Cycles (P) Ltd 2015 (11) TMI 1314 - SUPREME COURT wherein, it has been held that if assessee has own funds / interest free funds available with it to make investment, the presumption will be that investment made by the assessee is out of own funds. The issue is also squarely covered by the recent decision of the Hon'ble Supreme Court in CIT (LTU) Vs. Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT . In view of the above, no disallowance out of interest expenditure is warranted u/s 14A of the Income Tax Act. Application of the substituted provisions of Rule 8D w.e.f. 6.2.2016 by the Ld. CIT(A) is concerned, the issue has been settled by the Hon'ble Supreme court in the case of CIT Vs. Essar Teleholdings Ltd., 2018 (2) TMI 115 - SUPREME COURT wherein, it has been held that the amended rule 8D of the I.T. Rules is applicable prospectively. Administrative expenditure incurred for making the investment - HELD THAT - As we find that assessee during the year had made investment in four companies. The rest of the investments were old investments. There is no churning of the portfolios or to say repetitive investments. The assessee suo motu has disallowed a sum of Rs. 1 lacs in this respect. The Assessing Officer has not recorded his satisfaction that how the suo motu disallowance of Rs. 1 lac made by the assessee on account of administrative expenditure was not justified or correct vis-a-vis the accounts of the assessee and the investment made. In view of this, we do not find any justification on the part of the Assessing Officer in enhancing the suo motu disallowance made by the Assessing Officer on this issue. We restrict the disallowance u/s 14A of the Act in this case to the extent of suo motu disallowance made by the assessee of Rs. one lac. Appeal of assessee allowed.
Issues Involved:
1. Disallowance of expenditure under section 14A read with Rule 8D of the Income Tax Rules. 2. Disallowance under section 36(1)(iii) of the Income Tax Act. Analysis: Issue 1: Disallowance of Expenditure under Section 14A with Rule 8D: The primary contention revolved around the disallowance of expenditure under section 14A of the Income Tax Act. The Assessing Officer computed the disallowance under Rule 8D at Rs. 66,51,923, which the assessee contested by claiming sufficient own funds to cover the investments, thus warranting no disallowance. The CIT(A) agreed with the assessee, noting that the investments were made from mixed funds and directed the disallowance at 1% of the average value of investment as per the amended Rule 8D effective from 2.6.2016. The Tribunal upheld this decision, citing various court precedents and the prospective application of amended Rule 8D. Issue 2: Disallowance under Section 36(1)(iii) of the Income Tax Act: Regarding the disallowance under section 36(1)(iii) of the Act, the Assessing Officer had made a disallowance of interest expenditure, which the CIT(A) deleted based on the availability of sufficient interest-free funds to cover the investments. Citing the decision in 'Bright Enterprises Ltd vs CIT,' the CIT(A) held that if interest-free funds are available, the presumption is that investments are made from such funds. The Tribunal concurred with this reasoning, upholding the deletion of the disallowance under section 36(1)(iii). In conclusion, the Tribunal allowed the assessee's appeal, restricting the disallowance under section 14A to the amount suo motu disallowed by the assessee. The appeal of the Revenue was partly allowed on one ground and dismissed on others, with the impugned disallowances made by the Assessing Officer ordered to be deleted.
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